Theo paid a total of $50 to purchase 4 call options with a strike price of $54. What is the break-even stock price?
A)$12.50
B)$25.00
C)$23.63
D)$54.13
E)$56.32

Question

Quizplus · Accepted Answer

The break-even stock price for call options is calculated by adding the cost per option to the strike price. Theo paid a total of $50 for 4 options, so each option cost $50 / 4 = $12.50. Adding this cost to the strike price of $54 gives a break-even price of $54 + $12.50 = $66.50. However, since the calculation mistake was made in the explanation (the correct addition should be $54 + $12.50 / 4), the correct break-even price is actually $54 + $12.50 / 4 = $54 + $3.125 = $57.125, which is not among the provided options. The explanation intended to convey the correct method but made an error in the arithmetic operation. The correct calculation for the break-even price should consider the total cost divided by the number of options to find the cost per option, then add this to the strike price. Given the options, none directly match the corrected calculation, indicating a mistake in the initial response.

Theo Paid a Total of $50 to Purchase 4 Call